RAYTHEON TECHNOLOGIES CORP Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

BUSINESS OVERVIEW
We are a global premier systems provider of high technology products and
services to the aerospace and defense industries. On April 3, 2020, United
Technologies Corporation (UTC) completed the separation of its business into
three independent, publicly traded companies - UTC, Carrier Global Corporation
(Carrier) and Otis Worldwide Corporation (Otis) (the Separation Transactions).
UTC distributed all of the outstanding shares of Carrier common stock and all of
the outstanding shares of Otis common stock to UTC shareowners who held shares
of UTC common stock as of the close of business on March 19, 2020, the record
date for the distributions (the Distributions) effective at 12:01 a.m., Eastern
Time, on April 3, 2020. Immediately following the Separation Transactions and
Distributions, on April 3, 2020, UTC and Raytheon Company completed their
all-stock merger of equals transaction (the Raytheon Merger), pursuant to which
Raytheon Company became a wholly-owned subsidiary of UTC and UTC was renamed
Raytheon Technologies Corporation (RTC). As a result of these transactions, we
now operate in four principal business segments: Collins Aerospace Systems
(Collins Aerospace), Pratt & Whitney, Raytheon Intelligence & Space (RIS) and
Raytheon Missiles & Defense (RMD).
UTC was determined to be the accounting acquirer in the Raytheon Merger, and, as
a result, the financial statements of Raytheon Technologies include Raytheon
Company's financial position and results of operations for all periods
subsequent to the completion of the Raytheon Merger on April 3, 2020. RIS and
RMD follow a 4-4-5 fiscal calendar while Collins Aerospace and Pratt & Whitney
continue to use a quarter calendar end of September 30, 2021. Throughout this
Quarterly Report on Form 10-Q, when we refer to the quarters ended September 30,
2021 and September 30, 2020 with respect to RIS or RMD, we are referring to
their October 3, 2021 and September 27, 2020 fiscal quarter ends, respectively.
The historical results of Carrier and Otis are presented as discontinued
operations and, as such, have been excluded from both continuing operations and
segment results for all periods presented. See "Note 3: Discontinued Operations"
within Item 1 of this Form 10-Q for additional information. Throughout this
Quarterly Report on Form 10-Q, unless otherwise indicated, amounts and activity
are presented on a continuing operations basis.
Unless the context otherwise requires, the terms "we," "our," "us," "the
Company," "Raytheon Technologies," and "RTC" mean United Technologies
Corporation and its subsidiaries when referring to periods prior to the Raytheon
Merger and to the combined company, Raytheon Technologies Corporation, when
referring to periods after the Raytheon Merger. Unless the context otherwise
requires, the terms "Raytheon Company," or "Raytheon" mean Raytheon Company and
its subsidiaries prior to the Raytheon Merger.
The current status of significant factors affecting our business environment in
2021 is discussed below. For additional discussion, refer to the "Business
Overview" section in Management's Discussion and Analysis of Financial Condition
and Results of Operations (MD&A) in our 2020 Annual Report on Form 10-K.
Industry Considerations
Our worldwide operations can be affected by industrial, economic and political
factors on both a regional and global level. Our operations include original
equipment manufacturer (OEM) and extensive related aftermarket parts and
services related to our aerospace operations. Our defense business serves both
domestic and international customers primarily as a prime contractor or
subcontractor on a broad portfolio of defense and related programs for
government customers. Our business mix also reflects the combination of shorter
cycles on our commercial aerospace spares contracts and certain service
contracts in our defense business primarily at RIS, and longer cycles in our
aerospace OEM and aftermarket maintenance contracts and on our defense contracts
to design, develop, manufacture or modify complex equipment. Our customers are
in the public and private sectors, and our businesses reflect an extensive
geographic diversification that has evolved with continued globalization.
Government legislation, policies and regulations, including regulations related
to global warming, carbon footprint and fuel efficiency, can have a negative
impact on our worldwide operations. Government and industry-driven safety and
performance regulations, restrictions on aircraft engine noise and emissions,
government imposed travel restrictions, and government procurement practices can
impact our businesses.
Collins Aerospace and Pratt & Whitney serve both commercial and government
aerospace customers. Revenue passenger miles (RPMs), available seat miles and
the general economic health of airline carriers are key barometers for our
commercial aerospace operations. Performance in the general aviation sector is
closely tied to the overall health of the economy and is positively correlated
to corporate profits. Many of our aerospace operations' customers are covered
under long-term aftermarket service agreements at both Collins Aerospace and
Pratt & Whitney, which are inclusive of both spare parts and services.
RIS, RMD, and the defense operations of Collins Aerospace and Pratt & Whitney
are affected by U.S. Department of Defense (DoD) budget and spending levels,
changes in demand, changes in policy positions or priorities from a new U.S.
Administration and the global political environment. Total sales to the U.S.
government, excluding foreign military sales, were $7.7 billion for

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both the quarters ended September 30, 2021 and 2020, or 48% and 53% of total net
sales for those periods, respectively. Total sales to the U.S. government were
$23.2 billion and $17.6 billion for the nine months ended September 30, 2021 and
2020, or 49% and 44% of total sales for those periods, respectively.
Impact of the COVID-19 Pandemic
Beginning in 2020, the coronavirus disease 2019 (COVID-19) negatively impacted
the global economy, our business and operations, and the industries in which we
operate. The continued disruption to air travel and commercial activities and
the significant restrictions and limitations on businesses, particularly within
the aerospace and commercial airline industries, have negatively impacted global
supply, demand and distribution capabilities. In particular, the unprecedented
decrease in air travel resulting from the COVID-19 pandemic has adversely
affected our airline and airframer customers, and their demand for the products
and services of our Collins Aerospace and Pratt & Whitney businesses.
In the nine months ended September 30, 2020 we recorded write-downs of assets
and significant unfavorable Estimate at Completion (EAC) adjustments in our
Collins Aerospace and Pratt & Whitney businesses primarily related to:
•Goodwill impairment charges of $3.2 billion in the quarter ended June 30, 2020
related to two of our Collins Aerospace reporting units. Refer to "Note 2:
Acquisitions, Dispositions, Goodwill and Intangible Assets" within Item 1 of
this Form 10-Q for additional information,
•increased estimated credit losses on both our receivables and contract assets
of $48 million and $357 million in the quarter and nine months ended September
30, 2020, respectively,
•an unfavorable EAC adjustment $334 million on a Pratt & Whitney commercial
engine aftermarket contract due to lower estimated revenues driven by a change
in the estimated maintenance coverage period in both the quarter and nine months
ended September 30, 2020,
•contract asset and inventory impairments at Collins Aerospace due to the impact
of lower estimated future customer activity resulting from the expected
acceleration of fleet retirements of a commercial aircraft of $13 million and
$146 million in the quarter and nine months ended September 30, 2020,
respectively,
•an unfavorable EAC adjustment of $129 million related to lower estimated
revenues due to the restructuring of a customer contract at Pratt & Whitney in
both the quarter and nine months ended September 30, 2020,
•an $89 million impairment of commercial aircraft program assets at Pratt &
Whitney in both the quarter and nine months ended September 30, 2020,
•the impairment of a Collins Aerospace trade name of $57 million in total, in
the first and second quarters of 2020,
•unfavorable EAC adjustments on commercial aftermarket contracts at Pratt &
Whitney based on a change in estimated future customer activity of $48 million
in total, in the second and third quarters of 2020, and
•an unfavorable EAC adjustment at Pratt & Whitney related to a shift in overhead
costs to military contracts of $44 million in the second quarter of 2020.
Our RIS and RMD businesses, although experiencing minor impacts, have not
experienced significant business disruptions as a result of the COVID-19
pandemic.
Given the significant reduction in business and leisure passenger air travel,
continued travel restrictions that have resulted from the ongoing COVID-19
pandemic, and the resulting impacts on our customers and their business
activities, we expect our future operating results, particularly those of our
Collins Aerospace and Pratt & Whitney businesses, to continue to be negatively
impacted when compared to pre-COVID-19 (2019) results. Our expectations
regarding the COVID-19 pandemic and its potential financial impact are based on
available information and assumptions that we believe are reasonable at this
time; however, the actual financial impact is highly uncertain and subject to a
wide range of factors and future developments. While we believe that the
long-term outlook for the aerospace industry remains positive due to the
fundamental drivers of air travel demand, there continues to be uncertainty with
respect to the point at which commercial air traffic capacity will return to
and/or exceed pre-COVID-19 levels. We have seen indications that commercial air
travel is continuing to recover in certain areas of demand; however, other areas
continue to lag. In addition, while global vaccination rates have increased,
infection from COVID-19 variants have continued, which may impact the pace of
the commercial aerospace recovery. However, we continue to estimate that a full
recovery may occur in 2023 or 2024. New information may continue to emerge
concerning the scope, severity and duration of the COVID-19 pandemic, as well as
any worsening of the pandemic, the effect of additional variants, the efficacy,
acceptance, distribution and availability of vaccines, new or continued actions
to contain the pandemic's spread or treat its impact, and governmental, business
and individual personal actions taken in response to the pandemic (including
restrictions and limitations on travel and transportation, and changes in
leisure and business travel patterns and work environments) among others. Some
of these actions and related impacts may be trends that continue in the future
even after the pandemic no longer poses a significant public health risk. As our
commercial aerospace business begins to recover, we expect certain
employee-related and discretionary costs, which were subject to prior year cost
reduction actions, to return in 2021 and beyond. A recovery may also impact our
judgments around credit risk related to estimated credit losses.

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On September 24, 2021, in furtherance of an executive order, the U.S. Safer
Federal Workforce Task Force (Task Force) issued guidance requiring federal
contractors and subcontractors to comply with COVID-19 safety protocols,
including requiring certain employees to be fully vaccinated against COVID-19 by
December 8, 2021 except in limited circumstances. The vaccination requirements
will be incorporated in new government contracts, renewals, extensions and other
modifications signed on and after October 15, 2021, and will apply to employees
working on or in connection with such contracts, as well as to employees working
at a location at which an employee working on such contract is likely to be
present. We had previously announced an internal vaccine mandate with a January
1, 2022 deadline for all U.S. based employees. We do not expect all of our
employees who are covered by the U.S. federal contractor mandate to become fully
vaccinated by December 8, 2021, but we will comply with the requirements of the
Task Force's implementing guidance and the associated executive order. While
this mandate may have an impact on our operations, we do not expect this to have
a material adverse effect on our financial condition, results of operations or
liquidity. Our ability to perform on our contracts is also dependent upon our
subcontractors and suppliers. Our subcontractors and suppliers who are subject
to the U.S. federal contractor vaccine mandate may be impacted by an inability
to comply or loss of personnel, which could disrupt subcontractor or supplier
performance or deliveries, and negatively impact our business.
In addition, in March 2021, Congress passed the American Rescue Plan Act of 2021
(ARPA) which included pension funding relief provisions. For further discussion,
refer to the "FAS/CAS operating adjustment" subsection under the "Segment
Review" section below. We continue to monitor for any ongoing government
guidance related to COVID-19 that may be issued.
Other Matters
Global economic and political conditions, changes in raw material and commodity
prices, interest rates, foreign currency exchange rates, energy costs, levels of
air travel, the financial condition of commercial airlines, and the impact from
natural disasters and weather conditions create uncertainties that could impact
our business for the remainder of 2021 and in the future. With regard to
political conditions, in July 2019, the U.S. government suspended Turkey's
participation in the F-35 Joint Strike Fighter program because Turkey accepted
delivery of the Russian-built S-400 air and missile defense system. The U.S. has
imposed, and may impose additional, sanctions on Turkey as a result of this or
other political disputes. Turkish companies supply us with components, some of
which are sole-sourced, primarily in our aerospace operations for commercial and
military engines and aerospace products. Depending upon the scope and timing of
U.S. sanctions on Turkey and potential reciprocal actions, if any, such
sanctions or actions could impact our sources of supply and could have a
material adverse effect on our results of operations, cash flows or financial
condition. In addition, in October 2020, the People's Republic of China (China)
announced that it may sanction RTC in connection with a possible Foreign
Military Sale to Taiwan of six MS-110 Reconnaissance Pods and related equipment
manufactured by Collins Aerospace. Foreign Military Sales are
government-to-government transactions that are initiated by, and carried out at
the direction of, the U.S. government. To date, the Chinese government has not
imposed sanctions on RTC or indicated the nature or timing of any future
potential sanctions or other actions. If China were to impose sanctions or take
other regulatory action against RTC, our suppliers, affiliates or partners, it
could potentially disrupt our business operations. The impact of potential
sanctions or other actions by China cannot be determined at this time.
The change in the U.S. administration could result in changes to the U.S.
government's foreign policies that may impact regulatory approval for direct
commercial sales contracts for certain of our products and services to certain
foreign customers. Likewise, regulatory approvals previously granted for prior
sales can be paused or revoked if the products and services have not yet been
delivered to the customer. If we ultimately do not receive all of the regulatory
approvals, or those approvals are revoked, it could have a material effect on
our financial results. In particular, as of September 30, 2021, our contract
liabilities include approximately $440 million of advance payments received from
a Middle East customer on contracts for which we no longer believe we will be
able to execute on or obtain required regulatory approvals. These advance
payments may become refundable to the customer if the contracts are ultimately
terminated.
Changes in U.S. (federal or state) or international tax laws and regulations, or
their interpretation and application, including the amortization for research or
experimental expenditures, could significantly impact our provision for income
taxes, the amount of taxes payable, and our deferred tax asset and liability
balances. Recent proposals to increase the U.S. corporate income tax rate would
require us to revalue our deferred tax assets and liabilities upon enactment of
new tax legislation, which may result in a material, one-time, noncash increase
in income tax expense as well as material increases to our income tax expense
and payments in subsequent years.
See Part II, Item 1A, "Risk Factors" in our 2020 Annual Report on Form 10-K for
further discussion of these items.
                         CRITICAL ACCOUNTING ESTIMATES

Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management believes the most complex and sensitive judgments, because

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of their significance to the Condensed Consolidated Financial Statements, result
primarily from the need to make estimates about the effects of matters that are
inherently uncertain. See "Critical Accounting Estimates" within Item 7 and
"Note 1: Basis of Presentation and Summary of Accounting Principles" within Item
8 of our 2020 Annual Report on Form 10-K, which describe the significant
accounting estimates and policies used in preparation of the Consolidated
Financial Statements. Actual results in these areas could differ from
management's estimates. There have been no significant changes in our critical
accounting estimates during the nine months ended September 30, 2021.
                             RESULTS OF OPERATIONS
As described in our "Cautionary Note Regarding Forward-Looking Statements" in
this Form 10-Q, our interim period results of operations and period-to-period
comparisons of such results, particularly at a segment level, may not be
indicative of our future operating results. The following discussions of
comparative results among periods, including the discussion of segment results,
should be viewed in this context. As discussed further above in "Business
Overview," the results of RIS and RMD reflect the period subsequent to the
completion of the Raytheon Merger on April 3, 2020. As such, the results of RIS
and RMD for the second quarter of 2020 exclude results prior to the merger date,
the estimated impact of which is approximately $400 million of sales and
approximately $45 million of operating profit. These amounts have been excluded
from the nine months ended September 30, 2021 organic changes disclosed
throughout our Results of Operations discussion. In addition, as a result of the
Separation Transactions and the Distributions, the historical results of Carrier
and Otis are presented as discontinued operations and, as such, have been
excluded from both continuing operations and segment results for all periods
presented.
                                   Net Sales
                                              Quarter Ended September 30,                Nine Months Ended September 30,
(dollars in millions)                          2021                  2020                   2021                   2020
Net Sales                                $       16,213          $   14,747          $         47,344          $   40,168

The factors contributing to the total change year-over-year in total net sales for the quarter and nine months ended September 30, 2021 are as follows:

                                                                   Quarter Ended             Nine Months Ended
(dollars in millions)                                            September 30, 2021         September 30, 2021
Organic(1)                                                      $           1,664          $               66
Acquisitions and divestitures, net                                           (215)                      6,988
Other                                                                          17                         122
Total change                                                    $           1,466          $            7,176


(1)  We provide the organic change in net sales for our consolidated results of
operations. We believe that this measure is useful to investors because it
provides transparency to the underlying performance of our business, which
allows for better year-over-year comparability. The organic change excludes
acquisitions and divestitures, net and the effect of foreign currency exchange
rate fluctuations and other significant non-recurring and non-operational items
("Other"). A reconciliation of this measure to reported U.S Generally Accepted
Accounting Principles (GAAP) amounts is provided in the table above.
Net sales increased $1,664 million organically in the quarter ended
September 30, 2021 compared to the quarter ended September 30, 2020 primarily
due to higher organic sales of $1.2 billion at Pratt & Whitney and $0.4 billion
at Collins Aerospace. The increase at Pratt & Whitney was primarily driven by
higher commercial aftermarket sales, primarily due to an increase in shop visits
and related spare part sales, and higher commercial OEM sales, primarily due to
an increase in commercial engine deliveries, all driven by the recovery from the
prior year's unfavorable economic environment largely due to the COVID-19
pandemic. The increase in Pratt & Whitney commercial aftermarket sales was also
due to the absence of unfavorable contract adjustments of $0.3 billion in the
prior year. The increase at Collins Aerospace was primarily driven by higher
commercial aerospace aftermarket sales primarily due to an increase in flight
hours and aircraft fleet utilization as commercial aerospace continues to
recover from the prior year's unfavorable economic environment principally
driven by the COVID-19 pandemic. The $215 million decrease in net sales related
to Acquisitions and divestitures, net for the quarter ended September 30, 2021
compared to the quarter ended September 30, 2020, was primarily driven by the
sale of our Forcepoint business in the first quarter of 2021.
Organic sales in the nine months ended September 30, 2021 were relatively
consistent compared to the nine months ended September 30, 2020 as higher
organic sales of $0.6 billion at Pratt & Whitney and $0.5 billion at RMD were
offset by lower organic sales of $1.1 billion at Collins Aerospace. The higher
organic sales at Pratt & Whitney were primarily driven by higher commercial
aftermarket sales, primarily due to an increase in shop visits and related spare
part sales, principally driven by recovery from the prior year's unfavorable
economic environment principally driven by the COVID-19 pandemic. The increase
in Pratt & Whitney commercial aftermarket sales was also due to the absence of
unfavorable contract adjustments of $0.3 billion in the prior year. The higher
organic sales at RMD were primarily driven by higher sales on an international
Patriot

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program, higher sales to an international customer primarily for National
Advanced Surface to Air Missile System (NASAMS), higher sales on the Advanced
Medium-Range Air-to-Air Missile (AMRAAM) program and higher sales on the
StormBreaker program, partially offset by lower sales on direct commercial sales
contracts for precision guided munitions with a Middle East customer. The lower
organic sales at Collins Aerospace was primarily driven by lower commercial
aerospace OEM sales and lower commercial aerospace aftermarket sales, primarily
due to the change in the economic environment principally driven by the COVID-19
pandemic. The $6,988 million increase in net sales related to Acquisitions and
divestitures, net for the nine months ended September 30, 2021 compared to the
nine months ended September 30, 2020, was primarily driven by the Raytheon
Merger on April 3, 2020, partially offset by the sale of our Forcepoint business
in the first quarter of 2021.
                               Quarter Ended September 30,                 % of Total Net Sales
(dollars in millions)              2021                   2020               2021               2020
Net Sales
Products                $       12,331                 $ 11,469                    76.1  %     77.8  %
Services                         3,882                    3,278                    23.9  %     22.2  %
Total net sales         $       16,213                 $ 14,747                     100  %      100  %


Refer to "Note 19: Segment Financial Data" within Item 1 of this Form 10-Q for
the composition of external net sales by products and services by segment.
Net products sales increased $862 million in the quarter ended
September 30, 2021 compared to the quarter ended September 30, 2020 primarily
due to an increase in external products sales of $0.7 billion at Pratt &
Whitney.
Net services sales increased $604 million in the quarter ended
September 30, 2021 compared to the quarter ended September 30, 2020 primarily
due to an increase in external services sales of $0.5 billion at Pratt &
Whitney.
                                                 Nine Months Ended September 30,                     % of Total Net Sales
(dollars in millions)                               2021                   2020                  2021                    2020
Net Sales
Products                                     $         36,174          $   30,402                    76.4  %                 75.7  %
Services                                               11,170               9,766                    23.6  %                 24.3  %
Total net sales                              $         47,344          $   40,168                     100  %                  100  %


Net products sales increased $5,772 million in the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020
primarily due to an increase in external products sales of $4.0 billion at RMD
and $2.9 billion at RIS, both primarily due to the Raytheon Merger on April 3,
2020, and an increase in external products sales of $0.6 billion at Pratt &
Whitney, partially offset by a decrease in external products sales of
$1.5 billion at Collins Aerospace.
Net services sales increased $1,404 million in the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020
primarily due to an increase in external services sales of $0.9 billion at RIS
and $0.4 billion at RMD, both primarily due to the Raytheon Merger on April 3,
2020.
Our sales to major customers were as follows:
                                              Quarter Ended September 30,                     % of Total Net Sales
(dollars in millions)                           2021                  2020                 2021                   2020
Sales to the U.S. government(1)           $        7,737          $   7,747                   47.7  %                52.5  %
Foreign military sales through the U.S.
government                                         1,364              1,372                    8.4  %                 9.3  %
Foreign government direct commercial
sales                                              1,242              1,186                    7.7  %                 8.0  %
Commercial aerospace and other commercial
sales                                              5,870              4,442                   36.2  %                30.1  %
Total net sales                           $       16,213          $  14,747                    100  %                 100  %


(1)  Excludes foreign military sales through the U.S. government.

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                                          Nine Months Ended September 30,                 % of Total Net Sales
(dollars in millions)                         2021                2020                 2021                   2020
Sales to the U.S. government(1)           $   23,155          $  17,603                   48.9  %                43.8  %
Foreign military sales through the U.S.
government                                     4,156              3,040                    8.8  %                 7.6  %
Foreign government direct commercial
sales                                          3,735              2,653                    7.9  %                 6.6  %
Commercial aerospace and other commercial
sales                                         16,298             16,872                   34.4  %                42.0  %
Total net sales                           $   47,344          $  40,168                    100  %                 100  %


(1)  Excludes foreign military sales through the U.S. government.
                                 Cost of Sales
                                               Quarter Ended September 30,                Nine Months Ended September 30,
(dollars in millions)                           2021                  2020                   2021                   2020
Total cost of sales                       $      13,089           $   13,004          $        38,281           $   33,790
Percentage of net sales                            80.7   %             88.2  %                  80.9   %             84.1  %

The factors contributing to the change year-over-year in total cost of sales for the quarter and nine months ended September 30, 2021 are as follows:

                                                                    Quarter Ended             Nine Months Ended
(dollars in millions)                                            September 30, 2021          September 30, 2021
Organic(1)                                                      $              416          $             (818)

Acquisitions and divestitures, net                                             (53)                      5,854
Restructuring                                                                 (138)                       (305)
FAS/CAS operating adjustment                                                  (117)                       (565)
Acquisition accounting adjustments                                              63                         322
Other                                                                          (86)                          3
Total change                                                    $               85          $            4,491


(1)  We provide the organic change in cost of sales for our consolidated results
of operations. We believe that this measure is useful to investors because it
provides transparency to the underlying performance of our business, which
allows for better year-over-year comparability. The organic change excludes
acquisitions and divestitures, net; restructuring costs; the FAS/CAS operating
adjustment; costs related to certain acquisition accounting adjustments; and the
effect of foreign currency exchange rate translation fluctuations and other
significant non-recurring and non-operational items ("Other"). A reconciliation
of this measure to reported U.S. GAAP amounts is provided in the table above.
The organic increase in total cost of sales of $416 million for the quarter
ended September 30, 2021 compared to the quarter ended September 30, 2020 was
primarily driven by the organic sales increases at Pratt & Whitney noted above.
The change in organic cost of sales includes a decrease primarily due to
favorable commercial aerospace aftermarket and OEM product mix at Collins
Aerospace.
The decrease in other cost of sales of $86 million for the quarter ended
September 30, 2021 compared to the quarter ended September 30, 2020, is
primarily driven by the absence of a prior year impairment of commercial
aircraft program assets at Pratt & Whitney for $89 million.
The organic decrease in total cost of sales of $818 million for the nine months
ended September 30, 2021 compared to the nine months ended September 30, 2020,
was primarily driven by due to the organic sales decrease at Collins Aerospace
noted above, partially offset by the organic sales increases at RMD and Pratt &
Whitney noted above. The increase in cost of sales related to Acquisitions and
divestitures, net of $5,854 million for the nine months ended September 30, 2021
compared to the nine months ended September 30, 2020 is primarily driven by the
Raytheon Merger on April 3, 2020, partially offset by the sale of our Forcepoint
business in the first quarter of 2021 and the sale of the Collins Aerospace
military GPS and space-based precision optics businesses in the third quarter of
2020.
Other cost of sales for the nine months ended September 30, 2021 compared to the
nine months ended September 30, 2020, includes the absence of a prior year
impairment of commercial aircraft program assets at Pratt & Whitney for $89
million, which was more than offset by an unfavorable impact of foreign
exchange.
For further discussion on Restructuring costs see the "Restructuring Costs"
section below. For further discussion on FAS/CAS operating adjustment see the
"FAS/CAS operating adjustment" subsection under the "Segment Review" section
below. For

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further discussion on Acquisition accounting adjustments, see the "Acquisition
accounting adjustments" subsection under the "Segment Review" section below.
                               Quarter Ended September 30,                 % of Total Net Sales
(dollars in millions)              2021                   2020               2021               2020
Cost of sales
Products                $       10,296                 $ 10,322                    63.5  %     70.0  %
Services                         2,793                    2,682                    17.2  %     18.2  %
Total cost of sales     $       13,089                 $ 13,004                    80.7  %     88.2  %


Net products cost of sales in the quarter ended September 30, 2021 was
relatively consistent compared to the quarter ended September 30, 2020. Included
in the change was an increase in external products cost of sales at Pratt &
Whitney principally driven by the product sales increase noted above and a
decrease in products cost of sales at Collins Aerospace primarily due to
favorable commercial aerospace aftermarket and OEM product mix, a decrease in
restructuring costs, and the impact of the sale of the military GPS and
space-based precision optics businesses in the third quarter of 2020.
Net services cost of sales in the quarter ended September 30, 2021 was
relatively consistent compared to the quarter ended September 30, 2020. Included
in the change was an increase in external services cost of sales at Pratt &
Whitney principally driven by the services sales increase noted above, largely
offset by the absence of prior year significant unfavorable contract adjustments
as discussed in the "Segment Review" section below.
                                                 Nine Months Ended September 30,                     % of Total Net Sales
(dollars in millions)                               2021                   2020                  2021                    2020
Cost of sales
Products                                     $         30,267          $   26,571                    63.9  %                 66.1  %
Services                                                8,014               7,219                    16.9  %                 18.0  %
Total cost of sales                          $         38,281          $   33,790                    80.9  %                 84.1  %


Net products cost of sales increased $3,696 million in the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020
primarily due to an increase in external products cost of sales at RMD and RIS
principally due to the Raytheon Merger on April 3, 2020, partially offset by a
decrease in external products cost of sales at Collins Aerospace, principally
driven by the products sales decrease noted above.
Net services cost of sales increased $795 million in the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020
primarily due to an increase in external services cost of sales at RIS and RMD
principally due to the Raytheon Merger on April 3, 2020, partially offset by a
decrease in external services cost of sales at Pratt & Whitney, principally
driven by the absence of prior year significant unfavorable contract adjustments
as discussed in the "Segment Review" section below.
                           Research and Development
                                                     Quarter Ended September 30,                   Nine Months Ended September 30,
(dollars in millions)                                 2021                    2020                    2021                    2020
Company-funded                                 $               676       $          642       $              1,922       $        1,872
Percentage of net sales                                     4.2  %               4.4  %                     4.1  %               4.7  %
Customer-funded (1)                            $             1,125       $        1,207       $              3,414       $        3,032
Percentage of net sales                                     6.9  %               8.2  %                     7.2  %               7.5  %


(1)  Customer-funded research and development costs are included in cost of
sales in our Condensed Consolidated Statement of Operations.
Research and development spending is subject to the variable nature of program
development schedules and, therefore, year-over-year fluctuations in spending
levels are expected.
The increase in company-funded research and development of $34 million for the
quarter ended September 30, 2021 compared to the quarter ended September 30,
2020 was primarily driven by higher expenses of $37 million spread across
various commercial programs at Pratt & Whitney and higher expenses of $28
million at RIS related to continued investment in classified advanced
capabilities, partially offset by lower expenses of $32 million within
Eliminations and other primarily due to the sale of our Forcepoint business in
the first quarter of 2021.

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The decrease in customer-funded research and development of $82 million for the
quarter ended September 30, 2021 compared to the quarter ended September 30,
2020, was primarily driven by lower expenses of $80 million on various
commercial and military programs at Pratt & Whitney.
The increase in company-funded research and development of $50 million for the
nine months ended September 30, 2021 compared to the nine months ended
September 30, 2020 was primarily driven by $0.2 billion related to the Raytheon
Merger on April 3, 2020, partially offset by lower expenses of $0.1 billion
across various commercial programs at Collins Aerospace, which includes the
impact of cost reduction initiatives.
The increase in customer-funded research and development of $382 million for the
nine months ended September 30, 2021 compared to the nine months ended
September 30, 2020, was primarily driven by $0.6 billion related to the Raytheon
Merger on April 3, 2020, partially offset by lower expenses of $0.1 billion on
various commercial and military programs at Pratt & Whitney and lower expenses
of $0.1 billion at Collins Aerospace primarily related to the sale of the
military GPS and space-based precision optics businesses in the third quarter of
2020.
                      Selling, General and Administrative
                                                    Quarter Ended September 30,                   Nine Months Ended September 30,
(dollars in millions)                                2021                    2020                    2021                    2020
Selling, general and administrative expenses  $             1,229       $        1,401       $              3,817       $        4,189
Percentage of net sales                                    7.6  %               9.5  %                     8.1  %              10.4  %


Selling, general and administrative expenses decreased $172 million in the
quarter ended September 30, 2021 compared to the quarter ended September 30,
2020 primarily driven by lower costs of $101 million due to the sale of our
Forcepoint business in the first quarter of 2021, and lower selling, general and
administrative restructuring costs of $88 million primarily related to
restructuring actions taken at our Collins Aerospace and Pratt & Whitney
segments in the prior year.
Selling, general and administrative expenses decreased $372 million in the nine
months ended September 30, 2021 compared to the nine months ended September 30,
2020 primarily driven by $352 million of prior year charges related to increased
estimates of expected credit losses due to customer bankruptcies and additional
allowances for credit losses at our Pratt & Whitney and Collins Aerospace
segments, lower general and administrative restructuring costs of $257 million
primarily related to restructuring actions taken at Collins Aerospace and
Corporate in the prior year and lower costs of $184 million due to the sale of
our Forcepoint business in the first quarter of 2021, partially offset by an
increase in expenses of $0.4 billion related to the Raytheon Merger.
We are continuously evaluating our cost structure and have implemented
restructuring actions in an effort to keep our cost structure competitive. As
appropriate, the amounts reflected above include the beneficial impact of
previous restructuring actions on Selling, general and administrative expenses.
See "Note 12: Restructuring Costs" within Item 1 of this Form 10-Q and
Restructuring Costs, below, for further discussion.
                               Other Income, Net
                                              Quarter Ended September 30,                Nine Months Ended September 30,
(dollars in millions)                          2021                  2020                    2021                   2020
Other income, net                        $          124          $      734          $             314          $      835


Other income, net includes equity earnings in unconsolidated entities, royalty
income, foreign exchange gains and losses, and other ongoing and nonrecurring
items. The decrease in Other income, net of $610 million for the quarter ended
September 30, 2021, compared to the quarter ended September 30, 2020 was
primarily due to the absence of $608 million of gains on the sales of the
Collins Aerospace businesses in the third quarter of 2020, as further discussed
in "Note 2: Acquisitions, Dispositions, Goodwill and Other Intangible Assets"
within Item 1 of this Form 10-Q. Included in the change in Other income, net was
a decrease of approximately $90 million of foreign government wage subsidies
related to COVID-19 at Pratt & Whitney and Collins Aerospace, with the remaining
change spread across multiple items with no common or significant driver.
The decrease in Other income, net of $521 million for the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020 was
primarily due to the absence of $608 million of gains on the sales of the
Collins Aerospace businesses in the third quarter of 2020, and a $121 million
decrease in foreign government wage subsidies related to COVID-19 at Pratt &
Whitney and Collins Aerospace, partially offset by the absence of a prior year
impairment of a Collins Aerospace tradename of $57 million resulting from the
projected impact of COVID-19 with the remaining change spread across multiple
items with no common or significant driver.

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                            Operating Profit (Loss)
                                               Quarter Ended September 30,                    Nine Months Ended September 30,
(dollars in millions)                           2021                    2020                    2021                     2020
Operating profit (loss)                  $             1,343       $          434       $              3,638       $        (2,031)
Operating profit (loss) margin                        8.3  %               2.9  %                     7.7  %              (5.1)   %


The increase in Operating profit (loss) of $909 million for the quarter ended
September 30, 2021 compared to the quarter ended September 30, 2020 was
primarily driven by the operating performance at our segments as described below
in the individual segment results. Included in the increase in Operating profit
was a decrease in restructuring costs of $226 million primarily related to
restructuring actions taken at our Collins Aerospace and Pratt & Whitney
segments in the prior year.
The change in Operating profit (loss) of $5,669 million for the nine months
ended September 30, 2021 compared to the nine months ended September 30, 2020
was primarily driven by the absence of the prior year goodwill impairment loss
of $3,183 million related to two Collins Aerospace reporting units, the
operating performance at our operating segments almost half of which was due to
the Raytheon Merger, and an increase in our FAS/CAS operating adjustment of
$611 million primarily as a result of the Raytheon Merger. Included in the
increase in Operating profit was a decrease in restructuring costs of
$562 million primarily related to restructuring actions taken at our Collins
Aerospace and Pratt & Whitney segments in the prior year.
                      Non-service Pension (Income) Expense
                                                Quarter Ended September 30,               Nine Months Ended September 30,
(dollars in millions)                             2021                  2020                 2021                 2020

Non-service pension (income) expense $ (491) $ (253) $ (1,472) $ (658)

The change in Non-service pension (income) expense of $238 million for the
quarter ended September 30, 2021 compared to the quarter ended September 30,
2020 was primarily driven by a decrease in the discount rate, the Raytheon
domestic defined benefit pension plan amendment described below, and prior year
pension asset returns exceeding our expected return on assets (EROA) assumption.
The change in Non-service pension (income) expense of $814 million for the nine
months ended September 30, 2021 compared to the nine months ended September 30,
2020 was primarily driven by the inclusion of the Raytheon Company plans as a
result of the Raytheon Merger, and to a lesser extent, a decrease in the
discount rate, prior year pension asset returns exceeding our EROA assumption
and the Raytheon domestic defined benefit pension plan amendment described
below.
In December 2020, we approved a change to the Raytheon domestic defined benefit
pension plans for non-union participants to cease future benefit accruals based
on an employee's years of service and compensation effective December 31, 2022.
The plan change does not impact participants' historical benefit accruals.
Benefits for service after December 31, 2022 will be based on a cash balance
formula.
                             Interest Expense, Net
                                               Quarter Ended September 30,                   Nine Months Ended September 30,

(dollars in millions)                           2021                    2020                    2021                    2020
Interest expense                         $               367       $          356       $              1,070       $        1,041
Interest income                                          (9)                  (6)                       (24)                 (24)
Interest expense, net                    $               358       $          350       $              1,046       $        1,017
Average interest expense rate                         4.2  %               4.2  %                     4.1  %               4.0  %


Interest expense, net in the quarter ended September 30, 2021, was relatively
consistent with the quarter ended September 30, 2020. Included in interest
expense was $32 million of net debt extinguishment costs in connection with the
early repayment of outstanding principal, and a decrease in interest expense
primarily due the repayment of long-term debt. The average maturity of long-term
debt at September 30, 2021 is approximately 15 years.
Interest expense, net in the nine months ended September 30, 2021, was
relatively consistent with the nine months ended September 30, 2020. Included in
interest expense was a $74 million unfavorable change in the mark-to-market fair
value of marketable securities held in trusts associated with certain of our
nonqualified deferred compensation and employee benefit plans and $32 million of
net debt extinguishment costs in connection with the early repayment of
outstanding principal, partially offset by a decrease in interest expense
primarily due the repayment of long-term debt.

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                                  Income Taxes
                                                   Quarter Ended September 30,                         Nine Months Ended September 30,
                                                  2021                       2020                       2021                        2020
Effective income tax rate                                 0.2  %                 45.1  %                       17.0  %                 (31.5) %


The effective tax rate for the quarter ended September 30, 2021 includes
deferred tax benefits of $244 million associated with legal entity and
operational reorganizations implemented in the third quarter. The effective tax
rate for the quarter ended September 30, 2020 includes tax charges incremental
to the U.S. statutory rate of $206 million associated with the sales of the
Collins Aerospace businesses, as described in "Note 2: Acquisitions,
Dispositions, Goodwill and Intangible Assets" within Item 1 of this Form 10-Q.
The effective tax rate for the nine months ended September 30, 2021 includes
deferred tax benefits of $244 million associated with legal entity and
operational reorganizations implemented in the third quarter, tax charges of
$148 million associated with the sale of the Forcepoint business and tax charges
of $73 million associated with the revaluation of deferred taxes resulting from
the increase in the United Kingdom (U.K.) corporate tax rate to 25% effective in
2023. The loss from continuing operations before income taxes for the nine
months ended September 30, 2020 includes the $3.2 billion goodwill impairment,
as described in "Note 2: Acquisitions, Dispositions, Goodwill and Intangible
Assets" within Item 1 of this Form 10-Q, most of which is non-deductible for tax
purposes. The effective tax rate for the nine months ended September 30, 2020
also includes tax charges of $430 million resulting from the Separation
Transactions or the Raytheon Merger, primarily related to the impairment of
deferred tax assets and the revaluation of certain international tax incentives,
and $228 million of tax charges incremental to the U.S. statutory rate
associated with the sales of the Collins Aerospace and RIS businesses.
Net Income (Loss) from Continuing Operations Attributable to Common Shareowners
                                                  Quarter Ended September 30,                 Nine Months Ended September 30,
(dollars in millions, except per share
amounts)                                           2021                   2020                   2021                   2020
Net income (loss) from continuing
operations attributable to common
shareowners                                 $          1,400          $     

151 $ 3,212 $ (3,255) Diluted earnings (loss) per share from continuing operations

                       $           0.93          $     0.10          $           2.13          $    (2.48)


Net income (loss) from continuing operations attributable to common shareowners
for the quarter ended September 30, 2021 includes the following:
•acquisition accounting adjustments primarily related to the Raytheon Merger of
$456 million, net of tax, which had an unfavorable impact on diluted earnings
per share (EPS) from continuing operations of $0.30; and
•tax benefits of $244 million associated with legal entity and operational
reorganizations implemented in the third quarter 2021, which had a favorable
impact on diluted EPS from continuing operations of $0.16.
Net income (loss) from continuing operations attributable to common shareowners
for the quarter ended September 30, 2020 includes the following:
•acquisition accounting adjustments primarily related to the Raytheon Merger of
$401 million, net of tax, which had an unfavorable impact on diluted EPS from
continuing operations of $0.27;
•restructuring charges of $189 million, net of tax, which had an unfavorable
impact on diluted EPS from continuing operations of $0.12;
•significant unfavorable contract adjustments primarily at Pratt & Whitney of
$430 million, net of tax, which had an unfavorable impact on diluted EPS from
continuing operations of $0.28; and
•gains on the sales of the Collins Aerospace businesses of $253 million, net of
tax, as further discussed in "Note 2: Acquisitions, Dispositions, Goodwill and
Intangible Assets" within Item 1 of this Form 10-Q, which had a favorable impact
on diluted EPS from continuing operations of $0.17.
Net income (loss) from continuing operations attributable to common shareowners
for the nine months ended September 30, 2021 includes the following:
•acquisition accounting adjustments primarily related to the Raytheon Merger of
$1,257 million, net of tax, which had an unfavorable impact on diluted EPS from
continuing operations of $0.83;
•tax benefits of $244 million associated with legal entity and operational
reorganizations implemented in the third quarter 2021, which had a favorable
impact on diluted EPS from continuing operations of $0.16;
•tax expense of $148 million related to the sale of our Forcepoint business,
which had an unfavorable impact on diluted EPS from continuing operations of
$0.10;
•restructuring charges of $97 million, net of tax, which had an unfavorable
impact on diluted EPS from continuing operations of $0.06; and

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•tax expense of $73 million associated with the revaluation of deferred taxes
resulting from the increase in the U.K. corporate tax rate to 25% effective in
2023, which had an unfavorable impact on diluted EPS from continuing operations
of $0.05.
Net income (loss) from continuing operations attributable to common shareowners
for the nine months ended September 30, 2020 includes the following:
•acquisition accounting adjustments primarily related to the Raytheon Merger of
$1,004 million, net of tax, which had an unfavorable impact on diluted EPS from
continuing operations of $0.77;
•restructuring charges of $517 million, net of tax, which had an unfavorable
impact on diluted EPS from continuing operations of $0.39;
•$3,240 million of non-deductible goodwill and intangibles impairment charges
related to our Collins Aerospace segment, which had an unfavorable impact on
diluted EPS from continuing operations of $2.47;
•significant unfavorable contract adjustments at Collins Aerospace and Pratt &
Whitney of $603 million, net of tax, which had an unfavorable impact on diluted
EPS from continuing operations of $0.48;
•$415 million of tax charges in connection with the Separation Transactions,
including the impairment of deferred tax assets not expected to be utilized,
which had an unfavorable impact on diluted EPS from continuing operations of
$0.32;
•increased estimates of expected credit losses driven by customer bankruptcies
and additional general allowances for credit losses of $272 million, net of tax,
which had an unfavorable impact on diluted EPS from continuing operations of
$0.21; and
•gains on the sales of the Collins Aerospace businesses of $253 million, net of
tax, which had a favorable impact on diluted EPS from continuing operations of
$0.19.
     Net Income (Loss) from Discontinued Operations Attributable to Common
                                  Shareowners
                                                 Quarter Ended September 30,                Nine Months Ended September 30,
(dollars in millions, except per share
amounts)                                          2021                  2020                    2021                   2020
Net income (loss) from discontinued
operations attributable to common
shareowners                                 $         (7)           $      113          $             (34)         $     (399)
Diluted earnings (loss) per share from
discontinued operations                     $          -            $     0.08          $           (0.03)         $    (0.30)


On April 3, 2020, we completed the separation of our commercial businesses,
Carrier and Otis. Effective as of such date, the historical results of the
Carrier and Otis segments have been reclassified to discontinued operations for
all periods presented. See "Note 3: Discontinued Operations" within Item 1 of
this Form 10-Q for additional information.
The change in net income (loss) from discontinued operations attributable to
common shareowners of $120 million and the related change in diluted earnings
(loss) per share from discontinued operations of $0.08 in the quarter ended
September 30, 2021 compared to the quarter ended September 30, 2020 was
primarily due to the absence of a prior year tax benefit associated with the
Separation Transactions.
The change in net income (loss) from discontinued operations attributable to
common shareowners of $365 million and the related change in diluted earnings
(loss) per share from discontinued operations of $0.27 in the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020 was
primarily due to higher prior year costs associated with the separation of our
commercial businesses, including debt extinguishment costs of $611 million, net
of tax, in connection with the early repayment of outstanding principal,
partially offset by prior year Carrier and Otis operating activity, as the
Separation Transactions occurred on April 3, 2020.
              Net Income (Loss) Attributable to Common Shareowners
                                                  Quarter Ended September 30,                 Nine Months Ended September 30,
(dollars in millions, except per share
amounts)                                           2021                   2020                   2021                   2020
Net income (loss) attributable to common
shareowners                                 $          1,393          $     

264 $ 3,178 $ (3,654) Diluted earnings (loss) per share from operations

                                  $           0.93          $     0.17          $           2.10          $    (2.79)


The increase in net income (loss) attributable to common shareowners and diluted
earnings (loss) per share from operations for the quarter ended
September 30, 2021 compared to the quarter ended September 30, 2020 was
primarily driven by the increase in continuing operations, as discussed above in
Net Income (Loss) from Continuing Operations Attributable to Common Shareowners,
partially offset by the change from discontinued operations, as discussed above
in Net Income (Loss) from Discontinued Operations Attributable to Common
Shareholders.

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The increase in net income (loss) attributable to common shareowners and diluted
earnings (loss) per share from operations for the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020 was
driven by the increase in continuing operations, as discussed above in Net
Income (Loss) from Continuing Operations Attributable to Common Shareowners and
the change from discontinued operations, as discussed above in Net Income (Loss)
from Discontinued Operations Attributable to Common Shareholders.
                              RESTRUCTURING COSTS
                                                        Quarter Ended September 30,            Nine Months Ended September 30,
(dollars in millions)                                      2021                 2020                2021               2020

Restructuring costs                                 $         19             $    250          $       118          $    685


Restructuring actions are an essential component of our operating margin
improvement efforts and relate to both existing operations and recent mergers
and acquisitions. Charges generally arise from severance related to workforce
reductions and facility exit costs associated with the consolidation of field
and manufacturing operations and costs to exit legacy programs. We continue to
closely monitor the economic environment and may undertake further restructuring
actions to keep our cost structure aligned with the demands of the prevailing
market conditions.
2021 Actions. During the quarter and nine months ended September 30, 2021, we
recorded net pre-tax restructuring charges of $12 million and $113 million,
respectively, primarily related to severance costs related to ongoing cost
reduction efforts, and to a much lesser extent, the exit and consolidation of
facilities initiated in 2021. We expect to incur additional restructuring
charges of $74 million to complete these actions. We are targeting to complete
the majority of the remaining workforce and facility related cost reduction
actions initiated in 2021 by 2022. We expect recurring pre-tax savings related
to these actions to reach approximately $130 million annually within one to two
years. Approximately 60% of the restructuring costs will require cash payments,
which we have funded and expect to continue to fund with cash generated from
operations. During the nine months ended September 30, 2021, we had cash
outflows of $9 million related to the 2021 actions.
2020 Actions. During the quarters ended September 30, 2021 and 2020, we recorded
$1 million and $240 million, respectively, of net pre-tax restructuring charges
for actions initiated in 2020. During the nine months ended September 30, 2021
and 2020, we reversed $19 million and recorded $686 million, respectively, of
net pre-tax restructuring charges for actions initiated in 2020. We expect to
incur additional restructuring charges of $7 million to complete these actions.
We are targeting to complete in 2021 the majority of the remaining workforce and
facility related cost reduction actions initiated in 2020. We expect annual
recurring pre-tax savings related to these actions to reach approximately
$1.2 billion annually within two years of initiating these actions.
Approximately 85% of the restructuring costs will require cash payments, which
we have funded and expect to continue to fund with cash generated from
operations. During the nine months ended September 30, 2021 and 2020, we had
cash outflows of $200 million and $222 million, respectively, related to the
2020 actions.
In addition, during the quarters ended September 30, 2021 and 2020, we recorded
$6 million and $10 million, respectively, of net pre-tax restructuring charges
for restructuring actions initiated in 2019 and prior. During the nine months
ended September 30, 2021 and 2020, we recorded $24 million and reversed
$1 million, respectively, of net pre-tax restructuring charges for restructuring
actions initiated in 2019 and prior. For additional discussion of restructuring,
see "Note 12: Restructuring Costs" within Item 1 of this Form 10-Q.
                                 SEGMENT REVIEW
As discussed further above in Business Overview, on April 3, 2020, we completed
the Separation Transactions, Distributions and the Raytheon Merger. The results
of RIS and RMD reflect the period subsequent to the completion of the Raytheon
Merger on April 3, 2020. The historical results of Carrier and Otis are
presented as discontinued operations and, as such, have been excluded from both
continuing operations and segment results for all periods presented.
As previously announced, effective January 1, 2021, we reorganized certain
product areas of our RIS and RMD businesses to more efficiently leverage our
capabilities. The amounts and presentation of our business segments, including
intersegment activity, set forth in this Form 10-Q reflect this reorganization.
The reorganization does not impact our previously reported Collins Aerospace
Systems and Pratt & Whitney segment results, or our consolidated balance sheets,
statements of operations or statements of cash flows. Refer to "Note 19: Segment
Financial Data" within Item 1 of this Form 10-Q for revised financial results
for the fiscal quarters and year ended 2020.
As a result of the Raytheon Merger, we now present a FAS/CAS operating
adjustment outside of segment results, which represents the difference between
the service cost component of our pension and PRB expense under the Financial
Accounting Standards (FAS) requirements of U.S. Generally Accepted Accounting
Principles (GAAP) and our pension and postretirement benefit (PRB) expense under
U.S. government Cost Accounting Standards (CAS) primarily related to our RIS and
RMD

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segments. While the ultimate liability for pension and PRB costs under FAS and
CAS is similar, the pattern of cost recognition is different. We generally
expect to recover the related RIS and RMD pension and PRB liabilities over time
through the pricing of our products and services to the U.S. government. Because
the Collins Aerospace and Pratt & Whitney segments generally record pension and
PRB expense on a FAS basis, historical results were not impacted by this change
in segment reporting.
Segments are generally based on the management structure of the businesses and
the grouping of similar operations, based on capabilities and technologies,
where each management organization has general operating autonomy over
diversified products and services. Segment total net sales and operating profit
include intercompany sales and profit, which are ultimately eliminated within
Eliminations and other, which also includes certain smaller non-reportable
segments. For our defense contracts, where the primary customer is the U.S.
government subject to Federal Acquisition Regulation (FAR) part 12, our
intercompany sales and profit is generally recorded at cost-plus a specified
fee, which may differ from what the selling entity would be able to obtain on
sales to external customers. Segment results exclude certain acquisition
accounting adjustments, the FAS/CAS operating adjustment and certain corporate
expenses, as further discussed below.
Given the nature of our business, we believe that total net sales and operating
profit (and the related operating profit margin percentage), which we disclose
and discuss at the segment level, are most relevant to an understanding of
management's view of our segment performance, as described below.
Total Net Sales. Total net sales by segment were as follows:
                                               Quarter Ended September 30,                Nine Months Ended September 30,
(dollars in millions)                           2021                  2020                   2021                   2020
Collins Aerospace Systems                 $        4,592          $    

4,274 $ 13,507 $ 14,914 Pratt & Whitney

                                    4,725               3,494                    13,035              12,334
Raytheon Intelligence & Space                      3,740               3,749                    11,310               7,136
Raytheon Missiles & Defense                        3,902               3,706                    11,680               7,212
Total segment                                     16,959              15,223                    49,532              41,596
Eliminations and other                              (746)               (476)                   (2,188)             (1,428)

Consolidated                              $       16,213          $   14,747          $         47,344          $   40,168

Operating Profit (Loss). Operating profit (loss) by segment was as follows:

                                             Quarter Ended September 30,                  Nine Months Ended September 30,
(dollars in millions)                          2021                   2020                   2021                   2020
Collins Aerospace Systems              $             478          $      526          $          1,298          $    1,455
Pratt & Whitney                                      187                (615)                      319                (597)
Raytheon Intelligence & Space                        391                 350                     1,194                 659
Raytheon Missiles & Defense                          490                 449                     1,518                 847
Total segment                                      1,546                 710                     4,329               2,364
Eliminations and other                               (27)                (49)                      (98)               (101)
Corporate expenses and other
unallocated items                                    (89)                (84)                     (319)               (491)
FAS/CAS operating adjustment                         499                 380                     1,347                 736
Acquisition accounting adjustments                  (586)               (523)                   (1,621)             (4,539)
Consolidated                           $           1,343          $      434          $          3,638          $   (2,031)


Included in segment operating profit are Estimate at Completion (EAC)
adjustments, which relate to changes in operating profit and margin due to
revisions to total estimated revenues and costs at completion. These changes
reflect improved or deteriorated operating performance or award fee rates. For a
full description of our EAC process, refer to "Note 5: Changes in Contract
Estimates at Completion" within Item 1 of this Form 10-Q. Given that we have
thousands of individual contracts and given the types and complexity of the
assumptions and estimates we must make on an on-going basis, we have both
favorable and unfavorable EAC adjustments.

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We had the following aggregate EAC adjustments for the periods presented:
                                                   Quarter Ended September 30,                Nine Months Ended September 30,
(dollars in millions)                                2021                 2020                   2021                   2020
Gross favorable                                $         334          $      281          $           955          $       569
Gross unfavorable                                       (309)               (743)                    (891)              (1,161)
Total net EAC adjustments                      $          25          $     (462)         $            64          $      (592)


As a result of the Raytheon Merger, RIS's and RMD's long-term contracts that are
accounted for on a percentage of completion basis, were reset to zero percent
complete as of the merger date because only the unperformed portion of the
contract at the merger date represents an obligation of the Company. This had
the impact of reducing gross favorable and unfavorable EAC adjustments for these
segments in the prior year. The change in net EAC adjustments of $487 million in
the quarter ended September 30, 2021 compared to the quarter ended September 30,
2020 was primarily due to a favorable change in net EAC adjustments of $457
million at Pratt & Whitney, due to the absence of unfavorable contract
adjustments in the prior year.
The change in net EAC adjustments of $656 million in the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020 was
primarily due to a favorable change in net EAC adjustments of $545 million at
Pratt & Whitney, due to the absence of unfavorable contract adjustments in the
prior year, and a favorable change in net EAC adjustments of $121 million at RIS
and $87 million at RMD, primarily due to the Raytheon Merger. This was partially
offset by an unfavorable change in net EAC adjustments of $97 million at Collins
Aerospace spread across numerous individual programs with no individual or
common significant driver.
Significant EAC adjustments, when they occur, are discussed in each business
segment's discussion below.
Backlog and Defense Bookings. Total backlog was approximately $156.1 billion and
$150.1 billion as of September 30, 2021 and December 31, 2020, respectively,
which includes defense backlog of $65.0 billion and $67.3 billion as of
September 30, 2021 and December 31, 2020, respectively. Our defense operations
consist primarily of our RIS and RMD businesses and operations in the defense
businesses within our Collins Aerospace and Pratt & Whitney segments. Defense
bookings were approximately $9.8 billion and $8.4 billion for the quarters ended
September 30, 2021 and 2020, and approximately $30.2 billion and $21.8 billion
for the nine months ended September 30, 2021 and 2020, respectively.
Defense bookings are impacted by the timing and amounts of awards in a given
period, which are subject to numerous factors, including: (1) the desired
capability by the customer and urgency of customer needs, (2) customer budgets
and other fiscal constraints, (3) political and economic and other environmental
factors, (4) the timing of customer negotiations, (5) the timing of governmental
approvals and notifications, and (6) the timing of option exercises or increases
in scope. In addition, due to these factors, quarterly bookings tend to
fluctuate from period to period, particularly on a segment basis. As a result,
we believe comparing bookings on a quarterly basis or for periods less than one
year is less meaningful than for longer periods and that shorter term changes in
bookings may not necessarily indicate a material trend.
Collins Aerospace Systems
                                                         Quarter Ended September 30,                           Nine Months Ended September 30,
(dollars in millions)                                2021                 2020       Change                  2021                 2020        Change
Net Sales                                      $           4,592       $    4,274          7  %       $           13,507       $    14,914         (9) %
Operating Profit                                             478              526         (9) %                    1,298             1,455        (11) %
Operating Profit Margins                                 10.4  %          12.3  %                                 9.6  %           9.8   %


Quarter Ended September 30, 2021 Compared with Quarter Ended September 30, 2020
                                                      Factors Contributing to Total Change
                                                                    Acquisitions /             Restructuring
 (dollars in millions)                Organic(1)                   Divestitures, net               Costs                 Other             Total Change
Net Sales                         $           375                $              (67)         $            -          $       10          $         318

Operating Profit                              411                               (18)                    136                (577)                   (48)


(1)  We provide the organic change in net sales and operating profit for our
segments. We believe that these measures are useful to investors because they
provide transparency to the underlying performance of our business, which allows
for better year-over-year comparability. The organic change excludes
acquisitions and divestitures, net; restructuring costs; and the effect of
foreign currency exchange rate translation fluctuations and other significant
non-recurring and non-operational items ("Other"). A reconciliation of these
measures to reported U.S. GAAP amounts is provided in the table above.
The organic sales increase of $0.4 billion in the quarter ended
September 30, 2021 compared to the quarter ended September 30, 2020 primarily
relates to higher commercial aerospace aftermarket sales of $0.4 billion,
including increases

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across all aftermarket sales channels, primarily due to an increase in flight
hours and aircraft fleet utilization as commercial aerospace continues to
recover from the prior year's unfavorable economic environment principally
driven by the COVID-19 pandemic. Commercial aerospace OEM sales were down
slightly in the quarter ended September 30, 2021 compared to the quarter ended
September 30, 2020, with narrow-body OEM sales increases partially offsetting
wide-body volume declines principally on the 787 platform. Military sales were
also down slightly in the quarter ended September 30, 2021 compared to the
quarter ended September 30, 2020.
The organic profit increase of $0.4 billion in the quarter ended
September 30, 2021 compared to the quarter ended September 30, 2020 was
primarily due to higher commercial aerospace operating profit of $0.4 billion
principally driven by the higher commercial aerospace aftermarket sales
discussed above and favorable commercial aerospace aftermarket and OEM product
mix. Included in organic profit in the quarter ended September 30, 2020 was $32
million of foreign government wage subsidies related to COVID-19.
The decrease in net sales and operating profit due to acquisitions /
divestitures, net relates to the sale of our Collins Aerospace military GPS and
space-based precision optics businesses in the third quarter of 2020.
The decrease in Other operating profits of $0.6 billion in the quarter ended
September 30, 2021 compared to the quarter ended September 30, 2020 primarily
relates to the absence of prior year gains of $608 million on the sales of the
Collins Aerospace businesses discussed above.
      Nine Months Ended September 30, 2021 Compared with Nine Months Ended
                               September 30, 2020
                                                                 Factors 

Contributing to Total Change

                                                                  Acquisitions /             Restructuring
(dollars in millions)                     Organic(1)             Divestitures, net               Costs                 Other             Total Change
Net Sales                              $       (1,145)         $             (338)         $            -          $       76          $      (1,407)

Operating Profit                                  275                         (94)                    263                (601)                  (157)


(1)  We provide the organic change in net sales and operating profit for our
segments. We believe that these measures are useful to investors because they
provide transparency to the underlying performance of our business, which allows
for better year-over-year comparability. The organic change excludes
acquisitions and divestitures, net; restructuring costs; and the effect of
foreign currency exchange rate translation fluctuations and other significant
non-recurring and non-operational items ("Other"). A reconciliation of these
measures to reported U.S. GAAP amounts is provided in the table above.
The organic sales decrease of $1.1 billion in the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020
primarily relates to lower commercial aerospace OEM sales of $0.9 billion and
lower commercial aerospace aftermarket sales of $0.3 billion, including declines
across all aftermarket sales channels. These decreases were primarily due to the
change in the economic environment principally driven by the COVID-19 pandemic.
Military sales were up slightly in the nine months ended September 30, 2021
compared to the nine months ended September 30, 2020.
The organic profit increase of $0.3 billion in the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020 is
primarily due to lower Selling, general and administrative expenses of
$0.2 billion primarily driven by the absence of a $123 million charge related to
increased estimates of expected credit losses due to customer bankruptcies and
additional allowances for credit losses in the nine months ended September 30,
2020, and lower Research and development expenses of $0.1 billion, which
includes the impact of cost reduction initiatives. Commercial aerospace
operating profit decreased slightly and includes the impact of the lower
commercial aerospace aftermarket sales discussed above, partially offset by the
absence of $157 million of prior year significant unfavorable adjustments, the
benefit of cost reduction initiatives, and a $33 million favorable impact from a
contract related matter in the nine months ended September 30, 2021. The
significant unfavorable adjustments in the nine months ended September 30, 2020
were primarily driven by the expected acceleration of fleet retirements of a
certain aircraft. Included in organic profit in the nine months ended
September 30, 2020 was $56 million of foreign government wage subsidies related
to COVID-19.
The decrease in net sales and operating profit due to acquisitions /
divestitures, net relates to the sale of our Collins Aerospace military GPS and
space-based precision optics businesses in the third quarter of 2020.
The decrease in Other operating profits of $0.6 billion in the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020
primarily relates to the absence of prior year gains of $608 million on the
sales of the Collins Aerospace businesses discussed above.

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Pratt & Whitney
                                                         Quarter Ended September 30,                           Nine Months Ended September 30,
(dollars in millions)                                2021                 2020       Change                  2021                 2020        Change
Net Sales                                      $           4,725       $    3,494         35  %       $           13,035       $    12,334          6  %
Operating Profit                                             187            (615)            NM                      319             (597)            NM
Operating Profit Margins                                  4.0  %         (17.6) %                                 2.4  %          (4.8)  %


NM = Not Meaningful
Quarter Ended September 30, 2021 Compared with Quarter Ended September 30, 2020
                                                     Factors Contributing to Total Change
                                                                  Acquisitions /             Restructuring
(dollars in millions)                Organic(1)                  Divestitures, net               Costs                 Other             Total Change
Net Sales                          $      1,217                $                -          $            -          $       14          $       1,231

Operating Profit                            645                                 -                      61                  96                    802


(1)  We provide the organic change in net sales and operating profit for our
segments. We believe that these measures are useful to investors because they
provide transparency to the underlying performance of our business, which allows
for better year-over-year comparability. The organic change excludes
acquisitions and divestitures, net; restructuring costs; and the effect of
foreign currency exchange rate translation fluctuations and other significant
non-recurring and non-operational items ("Other"). A reconciliation of these
measures to reported U.S. GAAP amounts is provided in the table above. For
Pratt & Whitney only, Other also includes the transactional impact of foreign
exchange hedging at Pratt & Whitney Canada due to its significance to Pratt &
Whitney's overall operating results.
The organic sales increase of $1.2 billion in the quarter ended
September 30, 2021 compared to the quarter ended September 30, 2020 reflects
higher commercial aftermarket sales of $1.0 billion, primarily due to an
increase in shop visits and related spare part sales, and higher commercial OEM
sales of $0.2 billion, primarily due to an increase in commercial engine
deliveries, all driven by the recovery from the prior year's unfavorable
economic environment largely due to the COVID-19 pandemic. Prior year commercial
aftermarket sales include unfavorable EAC adjustments of $0.3 billion, discussed
further below. Military sales were up slightly in the quarter ended
September 30, 2021 compared to the quarter ended September 30, 2020.
The organic profit increase of $0.6 billion in the quarter ended
September 30, 2021 compared to the quarter ended September 30, 2020 was
primarily driven by higher commercial aerospace operating profit of $0.8 billion
principally due to the aftermarket sales volume increase discussed above,
favorable year-over-year EAC adjustments of $459 million, and favorable mix. The
favorable year-over-year EAC adjustments were principally driven by the absence
of prior year unfavorable EAC adjustments of $334 million related to a change in
the estimated maintenance coverage period on a commercial engine aftermarket
contract and $129 million due to the restructuring of a customer contract.
Included in organic profit in the quarter ended September 30, 2020 was other
income of $58 million related to foreign government wage subsidies related to
COVID-19.
The increase in Other operating profit of $0.1 billion in the quarter ended
September 30, 2021 compared to the quarter ended September 30, 2020 was
primarily driven by the absence of an $89 million impairment of commercial
aircraft program assets recorded in the prior year.
In the quarter ended September 30, 2021, Pratt & Whitney booked $543 million for
two F-135 sustainment contracts and $212 million for F100 engines for an
international customer. In the quarter ended September 30, 2020, Pratt & Whitney
booked $473 million for F-135 sustainment contracts.

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Nine Months Ended September 30, 2021 Compared with Nine Months Ended

September 30, 2020

Factors Contributing to Total Change

                                                                   Acquisitions /                   Restructuring
(dollars in millions)                    Organic(1)              Divestitures, net                      Costs                      Other               Total Change
Net Sales                              $          609       $                          -       $                      -       $             92       $         701

Operating Profit                                  634                                  -                            164                    118                 916


(1)  We provide the organic change in net sales and operating profit for our
segments. We believe that these measures are useful to investors because they
provide transparency to the underlying performance of our business, which allows
for better year-over-year comparability. The organic change excludes
acquisitions and divestitures, net; restructuring costs; and the effect of
foreign currency exchange rate translation fluctuations and other significant
non-recurring and non-operational items ("Other"). A reconciliation of these
measures to reported U.S. GAAP amounts is provided in the table above. For
Pratt & Whitney only, Other also includes the transactional impact of foreign
exchange hedging at Pratt & Whitney Canada due to its significance to Pratt &
Whitney's overall operating results.
The organic sales increase of $0.6 billion in the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020 reflects
higher commercial aftermarket sales of $0.7 billion, primarily due to an
increase in shop visits and related spare part sales driven by the recovery from
the prior year's unfavorable economic environment largely due to the COVID-19
pandemic, partially offset by lower commercial OEM sales of $0.1 billion. Prior
year commercial aftermarket sales include unfavorable EAC adjustments of $0.3
billion, discussed further below. Military sales were up slightly in the nine
months ended September 30, 2021 compared to the nine months ended September 30,
2020.
The organic profit increase of $0.6 billion in the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020 was
primarily driven by higher commercial aerospace operating profit of $0.5 billion
principally due to the favorable year-over-year EAC adjustments of $533 million,
and lower Selling, general and administrative expenses of $0.2 billion. The
higher commercial aerospace operating profit also includes the impact of the
aftermarket sales volume increase discussed above, which was largely offset by
lower commercial OEM operating profit due to unfavorable mix and lower sales
volume. The year-over-year favorable commercial aerospace EAC adjustments were
principally driven by prior year unfavorable EAC adjustments of $334 million
related to a change in the estimated maintenance coverage period on a commercial
engine aftermarket contract, $129 million due to the restructuring of a customer
contract, and $62 million net unfavorable EAC adjustments based on a portfolio
review of our commercial aftermarket programs. The lower Selling, general and
administrative expenses were primarily driven by the absence of a $229 million
charge in the prior year related to increased estimates of expected credit
losses due to customer bankruptcies and additional allowances for credit losses.
Also included in the organic change in operating profit was other income related
to foreign government wage subsidies related to COVID-19 of $52 million and $117
million for the nine months ended September 30, 2021 and 2020, respectively, and
an unfavorable EAC adjustment on a military program of $44 million in the second
quarter of 2020 primarily driven by a shift in estimated overhead costs due to
lower commercial engine activity.
The increase in Other operating profit of $0.1 billion in the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020 was
primarily driven by the absence of an $89 million impairment of commercial
aircraft program assets recorded in the prior year.
In addition to the bookings discussed above, in the nine months ended
September 30, 2021, Pratt & Whitney had two notable defense bookings for $593
million in total for F-135 sustainment contracts. In addition to the bookings
discussed above, in the nine months ended September 30, 2020, Pratt & Whitney
booked $1.2 billion for the F-135 program and $168 million for the Tanker
program.

Raytheon Intelligence & Space
                                                      Quarter Ended September 30,                     Nine Months Ended September 30,
(dollars in millions)                             2021              2020       Change               2021              2020       Change
Net Sales                                      $     3,740       $ 3,749             -  %       $     11,310       $ 7,136            58  %
Operating Profit                                       391           350            12  %              1,194           659            81  %
Operating Profit Margins                           10.5  %           9.3  %                         10.6   %           9.2  %
Bookings                                       $     2,894       $ 2,955            (2) %       $     10,572       $ 6,667            59  %




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Quarter Ended September 30, 2021 Compared with Quarter Ended September 30, 2020
                                         Factors Contributing to Total Change in Net Sales
                                                                          Acquisitions /
(dollars in millions)                       Organic(1)                   Divestitures, net                   Other             Total Change
Net Sales                               $           (45)               $               28                $         8          $         (9)


(1)  We provide the organic change in net sales for our segments. We believe
that this measure is useful to investors because it provides transparency to the
underlying performance of our business, which allows for better year-over-year
comparability. The organic change excludes acquisitions and divestitures, net,
and the effect of foreign currency exchange rate translation fluctuations and
other significant non-recurring and non-operational items ("Other"). A
reconciliation of this measure to the reported U.S. GAAP amount is provided in
the table above.
                                                   Factors Contributing to Change in Operating Profit
                                                Net change in EAC            Acquisitions /               Mix and other
(dollars in millions)      Volume                  adjustments              Divestitures, net              performance               Total Change

Operating Profit      $           (9)         $               45          $               (4)         $                 9          $          41


Organic sales in the quarter ended September 30, 2021 were relatively consistent
with the quarter ended September 30, 2020.
The increase in operating profit of $41 million and the related increase in
operating profit margins in the quarter ended September 30, 2021 compared to the
quarter ended September 30, 2020, was primarily due to the net favorable change
in EAC adjustments of $45 million, which was spread across numerous programs and
primarily a result of the Raytheon Merger and the associated reset to zero
percent complete for contracts accounted for on a percentage of completion
basis.
      Nine Months Ended September 30, 2021 Compared with Nine Months Ended

                               September 30, 2020
                                         Factors Contributing to Total Change in Net Sales
                                                                         Acquisitions /
(dollars in millions)                      Organic(1)                   Divestitures, net                   Other              Total Change
Net Sales                               $          120                $            4,023                $        31          $       4,174


(1)  We provide the organic change in net sales for our segments. We believe
that this measure is useful to investors because it provides transparency to the
underlying performance of our business, which allows for better year-over-year
comparability. The organic change excludes acquisitions and divestitures, net,
and the effect of foreign currency exchange rate translation fluctuations and
other significant non-recurring and non-operational items ("Other"). A
reconciliation of this measure to the reported U.S. GAAP amount is provided in
the table above.
                                                      Factors Contributing 

to Change in Operating Profit

                                                    Net change in EAC            Acquisitions /              Mix and other
(dollars in millions)          Volume                  adjustments              Divestitures, net             performance              Total Change

Operating Profit          $            2          $               98          $              404          $              31          $         535


Organic sales in the nine months ended September 30, 2021 were relatively
consistent with the nine months ended September 30, 2020. Included in the
increase in organic sales was higher net sales of $142 million on certain
Airborne Intelligence, Surveillance and Reconnaissance (ISR) programs within
sensing and effects primarily due to increased production driven by customer
demand, higher volume of $91 million on certain classified cyber programs within
cyber, training and services primarily due to increases in customer-determined
activity levels, and lower net sales of $71 million due to lower volume on
certain Space ISR programs within sensing and effects.
The increase in operating profit of $535 million and the related increase in
operating profit margins in the nine months ended September 30, 2021 compared to
the nine months ended September 30, 2020, was primarily due to the change in
acquisitions / divestitures, net of $404 million, and the net favorable change
in EAC adjustments of $98 million, which was spread across numerous programs and
primarily a result of the Raytheon Merger and the associated reset to zero
percent complete for contracts accounted for on a percentage of completion
basis.
The increase in net sales and operating profit due to acquisitions /
divestitures, net primarily relates to the Raytheon Merger on April 3, 2020.
Backlog and Bookings- Backlog was $18.7 billion at September 30, 2021 and
$19.2 billion at December 31, 2020. In the quarter ended September 30, 2021, RIS
booked $962 million on a number of classified contracts. In addition to these
bookings, in the nine months ended September 30, 2021, RIS booked $2,539 million
on a number of classified contracts, $365 million on the Standard Terminal
Automation Replacement System (STARS) program for the Federal Aviation
Administration (FAA), $227 million on a missile warning and defense contract,
$211 million to provide additional upgrades to the Global Positioning System
Next Generation Operational Control System (GPS OCX) program for the U.S. Air
Force, $199 million on an international tactical airborne radar sustainment
contract, $185 million on an international training contract with the U.K. Royal

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Navy, and $172 million on the Next Generation Jammer (NGJ) Mid-Band Low Rate
Initial Production (LRIP) contract with the U.S. Navy.
In the quarter ended September 30, 2020, RIS booked $928 million on a number of
classified contracts and $176 million to perform operations and sustainment for
the U.S. Air Force's Launch and Test Range System (LTRS). In addition to these
bookings, in the nine months ended September 30, 2020, RIS booked $1,418 million
on a number of classified contracts and $166 million on the Global Aircrew
Strategic Network Terminal (Global ASNT) program for the U.S. Air Force.
Raytheon Missiles & Defense
                                                      Quarter Ended September 30,                     Nine Months Ended September 30,
(dollars in millions)                             2021              2020       Change               2021              2020       Change
Net Sales                                      $     3,902       $ 3,706             5  %       $     11,680       $ 7,212            62  %
Operating Profit                                       490           449             9  %              1,518           847            79  %
Operating Profit Margins                           12.6  %          12.1  %                         13.0   %          11.7  %
Bookings                                       $     3,901       $ 2,489            57  %       $     12,487       $ 6,598            89  %



Quarter Ended September 30, 2021 Compared with Quarter Ended September 30, 2020
                                           Factors Contributing to Total Change in Net Sales
                                                                              Acquisitions /
(dollars in millions)                         Organic(1)                     Divestitures, net                   Other              Total Change
Net Sales                               $            193                   $                -                $         3          $         196


(1)  We provide the organic change in net sales for our segments. We believe
that this measure is useful to investors because it provides transparency to the
underlying performance of our business, which allows for better year-over-year
comparability. The organic change excludes acquisitions and divestitures, net,
and the effect of foreign currency exchange rate translation fluctuations and
other significant non-recurring and non-operational items ("Other"). A
reconciliation of this measure to the reported U.S. GAAP amount is provided in
the table above.
                                                Factors Contributing to Change in Operating Profit
                                               Net change in EAC          Acquisitions /              Mix and other
(dollars in millions)       Volume                adjustments            Divestitures, net             performance              Total Change

Operating Profit      $            21          $            8          $                -          $              12          $          41


The organic sales increase of $193 million in the quarter ended
September 30, 2021 compared to the quarter ended September 30, 2020 was
primarily due to higher net sales of $143 million to an international customer
driven by planned increases in production on NASAMS and higher net sales of $87
million on the AMRAAM program including the recognition of previously deferred
precontract costs resulting from a contract award in the third quarter of 2021,
partially offset by lower net sales of $65 million related to sales on our
direct commercial sales contracts for precision guided munitions with a Middle
East customer that had been recognized in the quarter ended September 30, 2020,
but subsequently reversed in the fourth quarter of 2020. We have not yet
obtained regulatory approval on these contracts, and we subsequently reversed
these sales because we determined, due to then-current events, that it was no
longer probable that we will be able to obtain regulatory approvals for these
contracts.
The increase in operating profit of $41 million in the quarter ended
September 30, 2021 compared to the quarter ended September 30, 2020, was
primarily due to an increase in volume of $21 million principally driven by the
activity on the programs described above in organic sales. The increase in
operating profit margins was primarily due to the change in mix and other
performance.

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Nine Months Ended September 30, 2021 Compared with Nine Months Ended

                               September 30, 2020
                                         Factors Contributing to Total Change in Net Sales
                                                                         Acquisitions /
(dollars in millions)                      Organic(1)                   Divestitures, net                   Other              Total Change
Net Sales                               $          452                $            3,999                $        17          $       4,468


(1)  We provide the organic change in net sales for our segments. We believe
that this measure is useful to investors because it provides transparency to the
underlying performance of our business, which allows for better year-over-year
comparability. The organic change excludes acquisitions and divestitures, net,
and the effect of foreign currency exchange rate translation fluctuations and
other significant non-recurring and non-operational items ("Other"). A
reconciliation of this measure to the reported U.S. GAAP amount is provided in
the table above.
                                                 Factors Contributing to Change in Operating Profit
                                               Net change in EAC            Acquisitions /              Mix and other
(dollars in millions)      Volume                 adjustments              Divestitures, net             performance              Total Change

Operating Profit      $          42          $               51          $              521          $              57          $         671


The organic sales increase of $452 million in the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020 was
primarily due to higher net sales of $118 million on an international Patriot
program driven by a contract modification in the second quarter of 2021, which
included the recognition of previously deferred precontract costs, higher net
sales of $92 million to an international customer driven by planned increases in
production on NASAMS, higher net sales of $84 million on the AMRAAM program
including the recognition of previously deferred precontract costs resulting
from a contract award in the third quarter of 2021 and higher net sales of $78
million on the StormBreaker program primarily due to the recognition of
previously deferred precontract costs based on a contract award in the second
quarter of 2021, partially offset by lower net sales of $119 million related to
sales on our direct commercial sales contracts for precision guided munitions
with a Middle East customer as discussed above.
The increase in operating profit of $671 million and the related increase in
operating profit margins in the nine months ended September 30, 2021 compared to
the nine months ended September 30, 2020 was primarily due to a change in
acquisitions / divestitures, net of $521 million.
The increase in net sales and operating profit due to acquisitions /
divestitures, net relates to the Raytheon Merger on April 3, 2020.
Backlog and Bookings- Backlog was $29.6 billion at September 30, 2021 and
$29.1 billion at December 31, 2020. In the quarter ended September 30, 2021, RMD
booked $570 million for AMRAAM for the U.S. Air Force and Navy and international
customers, $432 million to provide Guidance Enhanced Missiles (GEM-T) for an
international customer, $358 million for Evolved Sea Sparrow Missile (ESSM) for
the U.S. Navy and international customers, $291 million for Stinger missiles for
international customers and $175 million to provide Patriot technical assistance
for an international customer. RMD also booked $400 million on a number of
classified contracts. In addition to these bookings, in the nine months ended
September 30, 2021, RMD booked approximately $2 billion for the Long Range
Standoff (LRSO) Weapon System Engineering and Manufacturing Development (EMD)
contract for the U.S. Air Force, $1,315 million for the Next Generation
Interceptor (NGI) for the Missile Defense Agency (MDA), $518 million for AMRAAM
for the U.S. Air Force and Navy and international customers, $327 million for
AIM-9X Sidewinder short-range air-to-air missiles for the U.S. Navy and Air
Force and international customers, $247 million to provide Patriot engineering
services support for the U.S. Army and international customers, $242 million on
the Army Navy/Transportable Radar Surveillance-Model 2 (AN/TPY-2) radar program
for the MDA, and $213 million for StormBreaker for the U.S. Air Force and Navy.
In the quarter ended September 30, 2020, RMD booked $186 million on the AN/TPY-2
radar program for the Kingdom of Saudi Arabia (KSA). In addition to these
bookings, in the nine months ended September 30, 2020, RMD booked $2,253 million
on the AN/TPY-2 radar program for KSA and $321 million for Standard Missile-3
(SM-3) for the MDA and an international customer.
Eliminations and other
Eliminations and other reflects the elimination of sales, other income and
operating profit transacted between segments, as well as the operating results
of certain smaller non-reportable business segments, including Forcepoint, which
was acquired as part of the Raytheon Merger and subsequently disposed of on
January 8, 2021, as further discussed in "Note 2: Acquisitions, Dispositions,
Goodwill and Intangible Assets" within Item 1 of this Form 10-Q.

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                                                                Net Sales                              Operating Profit
                                                       Quarter Ended September 30,                Quarter Ended September 30,
(dollars in millions)                                    2021                  2020                 2021                 2020
Inter segment eliminations                        $          (745)         

$ (655) $ (16) $ (37) Other non-reportable segments

                                  (1)               179                    (11)               (12)
Eliminations and other                            $          (746)         $    (476)         $         (27)         $     (49)


The decrease in other non-reportable segment sales for the quarter ended
September 30, 2021 compared to the quarter ended September 30, 2020, was
primarily related to the sale of our Forcepoint business in the first quarter of
2021.
Other non-reportable segment operating profit for the quarter ended
September 30, 2021 was relatively consistent with the quarter ended
September 30, 2020.
                                                             Net Sales                             Operating Profit
                                                  Nine Months Ended

September 30, Nine Months Ended September 30, (dollars in millions)

                                 2021                2020                 2021                  2020
Inter segment eliminations                        $   (2,203)         $  

(1,756) $ (72) $ (73) Other non-reportable segments

                             15                328                     (26)               (28)
Eliminations and other                            $   (2,188)         $  (1,428)         $          (98)         $    (101)


The decrease in other non-reportable segment sales for the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020, was
primarily related to the sale of our Forcepoint business in the first quarter of
2021.
Other non-reportable segments operating profit for the nine months ended
September 30, 2021 was relatively consistent with the nine months ended
September 30, 2020.
Corporate expenses and other unallocated items
Corporate expenses and other unallocated items consists of costs and certain
other unallowable corporate costs not considered part of management's evaluation
of reportable segment operating performance including restructuring and merger
costs related to the Raytheon Merger, net costs associated with corporate
research and development, including the Lower Tier Air and Missile Defense
Sensor (LTAMDS) program which was acquired as part of the Raytheon Merger, and
certain reserves. See "Restructuring Costs," above, for a more detailed
discussion of our restructuring costs.
                                           Quarter Ended September 30,                Nine Months Ended September 30,
(dollars in millions)                       2021                  2020                   2021                   2020
Corporate expenses and other
unallocated items                     $          (89)         $      (84)         $           (319)         $     (491)


Corporate expenses and other unallocated items in the quarter ended
September 30, 2021 were relatively consistent with the quarter ended
September 30, 2020.
The decrease in Corporate expenses and other unallocated items of $172 million
for the nine months ended September 30, 2021 compared to the nine months ended
September 30, 2020 was primarily driven by a decrease in merger-related costs
related to the Raytheon Merger of $128 million and lower restructuring costs of
$112 million, partially offset by an increase in net expenses related to the
LTAMDS project.
FAS/CAS operating adjustment
The segment results of RIS and RMD include pension and PRB expense as determined
under U.S. government CAS, which we generally recover through the pricing of our
products and services to the U.S. government. The difference between our CAS
expense and the FAS service cost attributable to these segments under U.S. GAAP
is the FAS/CAS operating adjustment. The FAS/CAS operating adjustment results in
consolidated pension expense in operating profit equal to the service cost
component of FAS expense under U.S. GAAP. The segment results of Collins
Aerospace and Pratt & Whitney generally include FAS service cost.

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The components of the FAS/CAS operating adjustment were as follows:
                                           Quarter Ended September 30,               Nine Months Ended September 30,
(dollars in millions)                        2021                  2020                 2021                 2020
FAS service cost (expense)            $          (102)         $     (118)         $       (304)         $     (227)
CAS expense                                       601                 498                 1,651                 963
FAS/CAS operating adjustment          $           499          $      380

$ 1,347 $ 736

The change in our FAS/CAS operating adjustment of $119 million in the quarter
ended September 30, 2021 compared to the quarter ended September 30, 2020 was
driven by a $103 million increase in CAS expense, as well as a $16 million
decrease in FAS service cost. The increase in CAS expense was primarily due to
the third quarter 2021 update to our actuarial estimates.
The change in our FAS/CAS operating adjustment of $611 million in the nine
months ended September 30, 2021 compared to the nine months ended September 30,
2020 was driven by a $688 million increase in CAS expense, partially offset by a
$77 million increase in FAS service cost. The increase in our CAS expense was
primarily due to the inclusion of the Raytheon Company plans as a result of the
Raytheon Merger. The increase in our FAS service cost was primarily due to the
inclusion of the Raytheon Company plans as a result of the Raytheon Merger,
partially offset by the Raytheon domestic defined pension plan amendment, as
described below.
In December 2020, we approved a change to the Raytheon Company domestic defined
benefit pension plans for non-union participants to cease future benefit
accruals based on an employee's years of service and compensation effective
December 31, 2022. The plan change does not impact participants' historical
benefit accruals. Benefits for service after December 31, 2022 will be based on
a cash balance formula.
In response to the economic environment resulting from the COVID-19 pandemic,
Congress passed the American Rescue Plan Act of 2021 (ARPA) in March 2021, which
included pension funding relief provisions. These provisions extend and expand
upon existing pension funding relief, most notably by increasing the liability
interest rates used to determine the required cash contributions for our U.S.
qualified pension plans. As a result, we do not currently expect cash
contributions to be required for our U.S. qualified pension plans in 2021 or
2022.
The ARPA pension funding relief provisions are also expected to result in
decreases to CAS expense, and the related recovery under our contracts, for our
U.S. qualified pension plans beginning in 2022 as the interest rates used to
determine pension funding requirements for these plans are also used in
determining CAS expense.
Acquisition accounting adjustments
Acquisition accounting adjustments include the amortization of acquired
intangible assets related to acquisitions, the amortization of the property,
plant and equipment fair value adjustment acquired through acquisitions and the
amortization of customer contractual obligations related to loss making or below
market contracts acquired. These adjustments are not considered part of
management's evaluation of segment results.
The components of Acquisition accounting adjustments were as follows:
                                                                                            Nine Months Ended
                                                    Quarter Ended September 30,               September 30,
(dollars in millions)                                  2021             2020              2021              2020
Goodwill impairment charge                          $      -          $    -          $       -          $ (3,183)
Amortization of acquired intangibles                    (610)           (596)            (1,789)           (1,547)

Amortization of property, plant and equipment fair value adjustment

                                         (21)            (19)               (84)              (46)
Amortization of customer contractual obligations
related to acquired loss-making and below-market
contracts                                                 45              92                252               237
Acquisition accounting adjustments                  $   (586)         $ (523)         $  (1,621)         $ (4,539)



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Acquisition accounting adjustments related to acquisitions in each segment were
as follows:
                                                                                                 Nine Months Ended
                                                         Quarter Ended September 30,               September 30,
(dollars in millions)                                       2021             2020              2021              2020
Collins Aerospace Systems                                $   (196)         $ (157)         $    (466)         $ (3,736)
Pratt & Whitney                                               (47)             (7)               (98)              (91)
Raytheon Intelligence & Space                                (132)           (130)              (433)             (258)
Raytheon Missiles & Defense                                  (211)           (204)              (624)             (404)
Total segment                                                (586)           (498)            (1,621)           (4,489)
Eliminations and other                                          -             (25)                 -               (50)
Acquisition accounting adjustments                       $   (586)

$ (523) $ (1,621) $ (4,539)

The change in the Acquisition accounting adjustments of $63 million for the
quarter ended September 30, 2021 compared to the quarter ended September 30,
2020, was primarily driven by an increase at Pratt & Whitney primarily due to an
increase in collaboration intangibles amortization driven by an increase in
V2500 program activity and Collins Aerospace primarily due to the impact of
foreign currency exchange rates.
The change in the Acquisition accounting adjustments of $2,918 million for the
nine months ended September 30, 2021 compared to the nine months ended
September 30, 2020, is primarily driven by the $3.2 billion goodwill impairment
loss in the second quarter of 2020 related to two Collins Aerospace reporting
units, partially offset by an increase of $361 million for acquisition
accounting adjustments related to the Raytheon Merger, primarily due to the
timing of the merger in the prior year. Included in Acquisition accounting
adjustments in the nine months ended September 30, 2021 was $116 million of
amortization of customer contractual obligations due to the accelerated
liquidation of below-market contract reserves at Collins Aerospace driven by the
termination of two customer contracts. Refer to "Note 2: Acquisitions,
Dispositions, Goodwill and Intangible Assets" within Item 1 of this Form 10-Q
for additional information on the goodwill impairment loss.
                       LIQUIDITY AND FINANCIAL CONDITION

(dollars in millions)                                                 September 30, 2021         December 31, 2020
Cash and cash equivalents                                            $           7,476          $          8,802
Total debt                                                                      31,248                    31,823
Total equity                                                                    72,937                    73,852
Total capitalization (total debt plus total equity)                            104,185                   105,675
Total debt to total capitalization                                                  30  %                     30  %


We assess our liquidity in terms of our ability to generate cash to fund our
operating, investing and financing activities. Our principal source of liquidity
is cash flows from operating activities. In addition to operating cash flows,
other significant factors that affect our overall management of liquidity
include: capital expenditures, customer financing requirements, investments in
and divestitures of businesses, dividends, common stock repurchases, pension
funding, access to the commercial paper markets, adequacy of available bank
lines of credit, redemptions of debt, and the ability to attract long-term
capital at satisfactory terms. We had $6.84 billion available under our various
credit facilities at September 30, 2021.
Although our business has been and will continue to be impacted by COVID-19, as
discussed above in Business Overview, we currently believe we have sufficient
liquidity to withstand the potential impacts.
At September 30, 2021, we had cash and cash equivalents of $7.5 billion, of
which approximately 35% was held by RTC's foreign subsidiaries. We manage our
worldwide cash requirements by reviewing available funds among the many
subsidiaries through which we conduct our business and the cost effectiveness
with which those funds can be accessed. The Company does not intend to reinvest
certain undistributed earnings of its international subsidiaries that have been
previously taxed in the U.S. Taxes associated with the future remittance of
these earnings have been recorded. For the remainder of the Company's
undistributed international earnings, unless tax effective to repatriate, RTC
will continue to permanently reinvest these earnings. We have repatriated
approximately $1.8 billion of cash in the nine months ended September 30, 2021.
Historically, our strong credit ratings and financial position have enabled us
to issue long-term debt at favorable interest rates.
As of September 30, 2021, our maximum commercial paper borrowing limit was $5.0
billion as the commercial paper is backed by our $5.0 billion revolving credit
agreement. We had $160 million of commercial paper borrowings as of
September 30, 2021. The daily average amount of short-term commercial paper
borrowings outstanding during the nine months ended

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September 30, 2021 was $191 million. We use our commercial paper borrowings for
general corporate purposes, including the funding of potential acquisitions,
pension contributions, debt refinancing, dividend payments and repurchases of
our common stock. The commercial paper notes outstanding have original
maturities of not more than 90 days from the date of issuance.
In May 2021, we renewed our $2.0 billion revolving credit agreement, which now
expires in May 2022. As of September 30, 2021, we had revolving credit
agreements with various banks permitting aggregate borrowings of up to
$7.0 billion consisting of a $5.0 billion revolving credit agreement that became
available upon completion of the Raytheon Merger on April 3, 2020, and the $2.0
billion revolving credit agreement, and there were no borrowings outstanding
under these agreements.
We have an existing universal shelf registration statement, which we filed with
the Securities and Exchange Commission (SEC) on September 27, 2019, for an
indeterminate amount of debt and equity securities for future issuance, subject
to our internal limitations on the amount of debt to be issued under this shelf
registration statement.
The Company has offered a voluntary supply chain finance (SCF) program with a
global financial institution which enables our suppliers, at their sole
discretion, to sell their receivables from the Company to the financial
institution at a rate that leverages our credit rating, which might be
beneficial to them. Our suppliers' participation in the SCF program does not
impact or change our terms and conditions with those suppliers, and therefore,
we have no economic interest in a supplier's decision to participate in the
program. In addition, we provide no guarantees or otherwise pay for any of the
costs of the program incurred by those suppliers that choose to participate, and
have no direct financial relationship with the financial institution, as it
relates to the program. As such, amounts due to suppliers that have elected to
participate in the SCF program are included in Accounts payable on our Condensed
Consolidated Balance Sheet and all payment activity related to amounts due to
suppliers that elected to participate in the SCF program are reflected in cash
flows from operating activities in our Condensed Consolidated Statement of Cash
Flows. The SCF program does not impact our overall liquidity.
We believe our cash on hand and future operating cash flows will be sufficient
to meet our future operating cash needs. Further, we continue to have access to
the commercial paper markets and our existing credit facilities, and our ability
to obtain debt or equity financing, as well as the availability under committed
credit lines, provides additional potential sources of liquidity should they be
required or appropriate.

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